Discipline is more important than intelligence: Discussing Charli Munger’s investment checklist
To attain investment success, discipline counts more than intelligence and hard work! Investment discipline requires a set of guidelines/checklist to ensure that only good quality stocks enter the portfolio.
At Inertia, we maintain this discipline by following our four pronged investment approach: 1) Leader in an non-challenged sector, 2) Good profitability and return ratios depicting competitive advantage, 3) Impeccable management and corporate governance, and 4) Reasonable valuations.
In this newsletter, we present the checklist used by legendary investor Charlie Munger of Berkshare Hathway along with our comments:
1) Risk – All investment evaluations should begin by measuring risk, especially reputational. Our comments: Good corporate governance is a must to make money in the long-term.
2) Independence – Only in fairy tales are emperors told they are naked. Our comments: Discipline and ability to take independent decision irrespective of what is popular is key
3) Preparation – The only way to win is to work, work, work, work, and hope to have a few insights. Our comments: It is important to understand the source of competitive advantage of the business.
4) Intellectual humility – Acknowledging that you don’t know is the dawning of wisdom. Our comments: It is important to stick to the investment style we have developed some expertise in.
5) Analytical Rigor – Use of scientific methods and effective checklists Our comments: Analysis of business along with all moving parts.
6) Allocation – Proper allocation of capital is investor’s number one job Our comments: Can’t agree more!
7) Patience – Resist the natural human bias to act Our comments: That is why we named ourselves ‘Inertia’!
8) Decisiveness – Act with conviction Our comments: Reflects in our long-term investment style